Investors often talk about two different phases of the clean-tech industry. There was the dramatic boom and bust beginning in the late 2000s, known as clean tech 1.0. And then there's the boom that's underway today, which some call clean tech 2.0.
Vinod Khosla doesn't see it that way.
"I actually don't see a difference," the tech billionaire, who has a long history of clean-tech investing, told Business Insider. "It's a false notion."
Khosla, the founder of Khosla Ventures, which is among the most well-known venture funds, says investors who got burned in clean tech 1.0 were either impatient or simply made bad investments. In fact, several of today's clean-tech unicorns including LanzaTech and QuantumScape were actually a part of clean tech 1.0, and Khosla Ventures notched significant returns on both, he said. It just took time.
"People didn't stick with their winners long enough," he said. "Most investments don't work out, so you have to stick with your winners."
That idea is tied closely to what Khosla says is his most important piece of advice for the many newcomers to clean tech: "Bet on the more radical innovations and be very patient. They're not quick payoffs."
So what is Khosla betting on?
How Khosla invests in climate tech
When it comes to clean-tech investing, Khosla prioritizes ideas that have the potential to wipe out a large proportion of global carbon emissions. He's not really interested in incremental change, he says.
Plus, the tech needs to be competitive without government subsidies, he adds.
"Unsubsidized market competitiveness is the only way these technologies scale — end of story," he said.
He's also focusing on technologies that are already proven, or close to getting there.
"If we are to affect change by 2040 through the mass adoption of these technologies, they will need to be somewhat 'proven' by 2025," he wrote this summer. "That is the set of technologies I am immediately concerned with."
There are a dozen such technologies, he writes, and some appear more certain to succeed.
Khosla is particularly bullish on four areas of innovation: electric vehicles and the batteries that power them, low-carbon fuels for shipping and air travel, meat alternatives, and low-carbon construction. The path for tech in these sectors "is clearly visible," he writes.
'Batteries are absolutely critical'
Khosla is keen to talk about his firm's investment in the battery startup QuantumScape, which went public through a SPAC in November. The company returned "more than a billion dollars" to Khosla Ventures, he said, and it took 10 years — making it a good example of the patience that's required in clean-tech investing.
"Batteries are absolutely critical to get electric cars cost-competitive and experience-competitive," with traditional cars, he said. By experience-competitive, Khosla means that they can charge in 10 minutes or less, like filling up at a gas station.
QuantumScape recently released performance data showing its batteries can charge to 80% in less than 15 minutes.
Khosla Ventures also invested in battery startups Sakti3 and Seeo, which were both acquired in 2015. (Sakti3 was acquired by Dyson in a $90 million deal, though Dyson later relinquished the startup's IP, Quartz reported. Appliance giant Bosch acquired Seeo, but the company abandoned its EV ambitions a few years later.)
Khosla is betting on jet fuel made from carbon emissions
Batteries don't make as much sense for propelling aircraft and large ships, which are far heavier and would require an expensive load of lithium-ion cells. Sustainable jet fuel does, Khosla said.
The challenge is producing those fuels at a scale where they're cost-competitive with traditional fuels, he says. Fuel made from, say, vegetable oil, doesn't scale well, he says.
Khosla is betting instead on a technology developed by LanzaTech. The firm has figured out how to recycle carbon emissions into ethanol, and its subsidiary LanzaJet can turn that ethanol into jet fuel.
"There are other jet fuel efforts but it is hard to tell if they will scale and be cost-competitive with LanzaJet," Khosla writes. "To the best of my knowledge, few are fully operational beyond pilot plants by 2025 or have the scalability of feedstock."
His firm is also bullish on meat replacements and green cement
Meat comes with a big carbon footprint, making alternatives with a comparable taste attractive.
Again, finding the right solution is largely a question of scale, Khosla says. There are several technologies to reduce emissions in the ag sector, he says, but they're less likely than plant proteins to scale globally.
That's the thinking behind his firm's investment in Impossible Foods, a fake-meat startup that's now valued at $4 billion. Khosla Ventures also invested in Just, which developed a plant-based egg replacement.
"Impossible Foods was the original plant protein company we invested in, in 2011, almost 10 years ago," he said. "People forget it takes a while."
Khosla is also excited about lower-profile innovations that help curb emissions in construction.
It's really hard to slash greenhouse gases in this sector in a fundamental way, he says — meaning, beyond 20%. To that end, his firm is backing the startup Fortera, which makes low-carbon cement, as well as Mighty Buildings, a firm that 3D-prints materials for modular homes.
Several other areas of innovation are needed to address climate change, but they come with greater risk to investors
Khosla lists eight other areas of innovation that will be key to tackling climate change, from low-carbon energy technologies, such as fusion, to infrastructure for better public transportation. But it's not as clear which of these technologies will be jackpot investments, he writes.
Here are some of Khosla's comments on hyped climate tech that falls within those categories.
- Grid-scale storage: "I think Form Energy is a very good idea," he said, referring to the buzzy long-duration battery startup. "Large scale storage for the grid makes solar and wind viable." Khosla is a co-investor at Breakthrough Energy Ventures (BEV), which backs Form Energy. "If we had run into Form before BEV we would have invested in something like that," he said. "We have been actively looking."
- Fusion: "There are very good attempts at fusion energy, a limitless source that will potentially (if cost-effective) also solve the water, hydrogen, and fertilizer problems," he wrote. "Commonwealth Fusion is trying to make it real in the current decade! Though there are other good efforts in fusion energy, I do assign this very risky project a material probability of being a world changer." (Khosla invests in Commonwealth Fusion Systems.)
- Hydrogen: Cost is "paramount," he writes. "We've looked aggressively and haven't found somebody with breakthrough technology," Khosla told BI. "If you find one, have them call me."
- Direct-air carbon capture: "Direct-air capture is far from economic," Khosla said. "One would have to take the technology risk and then assume that regulatory pressures would sort of keep the carbon price high."
- Microbe-based fertilizers: "Soil microbes to produce nitrogen are also being attempted but I don't see scale technologies to solve this problem yet," he wrote.
